Industry hails GST rates good for budget segments

By Mohit Rathod on June 11, 2017

Following the announcement of GST rates, the tourism and hospitality industry has showed mixed reactions. The development is expected to result in a plunge in economy class air fare, however business class fares will see a surge. GST on the economy class air travel has been finalised at five per cent. However, GST on business class air travel has been announced at 12 per cent, three per cent more than the existing service tax rate. Credit rating agency ICRA has said these rates changes are not material, and should not have any major impact – positive or negative – on the air passenger growth. However, the lowering of tax rate on economy class travel is in line with the focus of the Ministry of Civil Aviation to make flying affordable for the masses.

Kinjal Shah, AVP and co-head – corporate sector ratings, ICRA, said, “With airlines generating a major portion of their revenues from economy class, disallowance of input tax credit on inputs (excluding services) for economy class would result in an additional cost to the airlines. In the current scenario of pressure on yields due to increasing capacities and competitive intensity, the ability of the airlines to pass on the increased cost to the customers too will be restricted.”

Indroneel Dutt, CFO, Cleartrip, commented, “GST implementation is a great leveler not just for rate rationalisation but for predictability it brings to our industry. The GST council’s decision to pull down the tax rate for economy class tickets should incrementally benefit the segment and help sustain sector growth. Coupled with the broader aviation strategy of promoting regional travel, we believe the direction will help usher in a new era in India’s aviation.”

While the aviation industry is not likely to be affected, industry players have raised concern that tourism and hospitality industry will be hit. One of the major factors affecting the tourism and hospitality sector is said to be the GST rates for hotels and restaurants. The hospitality industry has expressed disappointment over the GST rates for hotels and restaurants. The GST council has pegged GST for AC eateries and those with liquor licence at 18 per cent, non-AC restaurants at 12 per cent, hotels charging room rentals between Rs 1000 and Rs 2500 at 12 per cent, Rs 2500 and Rs 5000 at 18 per cent and above Rs 5000 at 28 per cent. Terming the rates as complex, high and uncompetitive, the hotel industry has declared that it will make representation to the Finance Minister and Tourism Minister to review the rates once again.

“The government should realise that while neighbouring countries like Myanmar, Thailand, Singapore, Indonesia and others levy taxes ranging from 5 to 10 per cent, we cannot afford to have these kind of complex and high GST. This is simply not viable. Tourists will simply skip India,” said Dilip Datwani, president, Hotel and Restaurant Association of Western India (HRAWI). HRAWI was expecting it to be placed in the five per cent slab.

“The long awaited tax slabs on GST in the travel and hospitality sector have been announced. Overall this seems like a good move for the sector and should help the growth momentum continue. Budget hotels have been kept insulated from any increases in tariffs, while the luxury segment might see an increase due to the GST rates announced,” stated Sharat Dhall, COO (B2C), Yatra.com.

Vikas Bhola, head – Indian sub continent, Booking.com, commented, “The GST rates will provide an opportunity to the hotels operating in the budget travel segment to upgrade their services and give them more competing opportunities in the Indian market. The number of budget travellers will improve in the country and we will see a lot more properties catering to this segment. As far as luxury travel is concerned, we believe that it will continue to remain on par and the GST rates will not make a huge dent in their sales.”

Ankur Bhatia, executive director, Bird Group, expressed, “Recently the industry has already been severely impacted by the Supreme Court liquor ban and GST rates have come as another shocker. These high and complex GST rates will create further impediments to the industry’s growth which is still maturing.”

On another note, the budget hotel sector has welcomed the GST rate, Ritesh Agarwal, founder and CEO, OYO, said, “A lower tax rate for budget hotels sector will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle- class travellers.” Adding to that, Sidharth Gupta, co-founder, Treebo Hotels, said, “We welcome the lower tax rates introduced for budget hotels. Around 75-80 per cent of Treebo’s inventory lies in the Rs 1,000-2,500 price band. The GST applicable in this band is 12 per cent as opposed to 17-20 per cent applicable earlier. This means that our rooms will now be even more affordably priced.”

The NDA government also recently completed three years of governance, and has taken a number of steps for the aviation, tourism and hospitality industries. Commenting on that, Rakshit Desai, managing director, FCM Travel Solutions, said, “Reinforcing India’s image as a tourist destination internationally, the Modi government in the last three years introduced several initiatives that have strengthened and enhanced tourism in the country. Initiatives such as sanctioning visa on arrival and extending electronic travel authorisation (ETA) to more countries, developing a mobile application for tourists, introducing the Incredible India multilingual tourist helpline and the launch of new schemes like Swadesh Darshan and Prasad have definitely been recognised as agents of progress and socio-economic growth. Connectivity is a very significant feature in tourism. In the coming years the government should focus on building strong infrastructure with significant investments in roads, railways and airports in Tier II cities to boost regional connectivity. This, we believe, will encourage domestic tourism and will help push inbound arrivals.”

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